The FIA stance on broker duties

On Wednesday 14 January, we published a newsletter covering a recent determination from the Financial Advisory and Intermediary Services Ombudsman regarding the duties of a broker. Since then, we have received comment from Joe Kotze, National Manager: Compliance at the Financial Intermediaries Association of Southern Africa.

Hi Jonathan 

I refer to the abovementioned article and the comments from brokers thereon.  Although it may seem that there is a total onslaught against brokers by the FAIS Ombud, especially in the short-term insurance space, it remains a fundamental requirement as stipulated in section 7(1)(c)(vii) of the General Codeof Conduct (GCoC), that the provider must give full, appropriate and concise details of any special terms or conditions, exclusions of liability, waiting periods, loadings, penalties, excesses, restrictions or circumstances in which benefits will not be provided.

I share the sentiments of many that having to explain each and every clause of a policy schedule in detail to a client may border on the absurd. It may, however, be prudent to at least draw up a one-pager wherein the most prevalent pitfalls, as mentioned in section 7 of the GCoC, are explained. The broker should explain to the client that non-compliance with those clauses can lead to the repudiation of a claim. The broker should also urge the client to study those noted clauses as soon as reasonably possible and to contact him/her in case of uncertainty. This correspondence should be recorded as it may serve as proof that the broker acted as reasonably required. 

The attached document gives an overview of the duties of the prudent broker as recorded in our law. In Lappeman Diamond Cutting Works (Pty) Ltd v MIB Group (Pty) Ltd the court held that “a broker does not, and cannot be expected to control the business of the insured. Even the specialist broker’s duty does not encompass a duty to ensure that the insured complies with his obligations under the policy. He is not the insured’s keeper. His duty, as a specialist broker, is discharged when he has done everything reasonably necessary to draw the attention of the insured to obligations imposed by the policy. It is the insured’s responsibility to ensure compliance.” 

The above may still not be enough to convince the FAIS Ombud that the broker acted as could reasonably be expected. In cases where a broker feels aggrieved by a determination, he/she should seek the opinion of legal minds and FAIS experts such as an Anton Swanepoel. It is a common view that aggrieved brokers should exercise their right to appealmore frequently. This may hopefully lead to more consistentand fair determinations being made in the broker and client minefield that exists in the short term insurance sector.

Kind regards.

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